Is Dell a Supply Chain Leader Anymore?

Can you have a superb supply chain and yet be a company that has poor sales of its products and declining revenues? I don't think so, but others may disagree, and now here's the story of Dell Inc., which has for the past three years consistently been selected as one of the top 5 companies operating an excellent supply chain by research firm Gartner Inc.

In Gartner's supply chain top 25 list for 2010, Dell ranked fifth and was described as "a highly respected supply chain leader" that enjoyed high inventory turns. The company was also cited as one that was still innovative and was complimented for targeting the growing healthcare sector and providing "a service, software and hardware bundle for small and midsize doctors' offices looking to improve their operations with electronic health records."

At the time, the report also noted the competitive challenges in the PC market, which threatened to undermine Dell's profitability.

How the mighty have fallen
In 2011, Dell improved its standing on Gartner's supply chain top 25 list, placing second in the ranking. Then, in 2012, Dell slipped to fourth spot in the Gartner ranking, but still maintained its position as a leader in supply chain efficiency, and was described as a company:

...whose signature supply chain capability has evolved from blazing-fast, configure-to-order capability to segmenting fit-for-purpose supply chains to the needs of its diverse customers across consumer, government, educational institutions, large enterprises and small businesses.
This computing OEM has evolved into a solutions company, all while significantly improving its physical supply chain performance during the past few years in terms of end-to-end cycle time, order fulfillment rate and total supply chain costs. Dell is also employing design-to-value techniques to maximize the value of its product offerings, and has been steadily reducing complexity in its product portfolio.

Given that Dell's sales of PCs have been on the decline for the past three years, it almost seems that Gartner is describing another company. It is not a stretch to say that since 2010 Dell has misread the consumer markets' changing desires, which happens to be a fundamental part of any successful supply chain. Tablets and smartphones have curbed sales of PCs and notebooks, which has damaged Dell's main revenue stream.

Another important component in a successful supply chain strategy is the ability to innovate and develop products that can compete in the market. Dell has not been able to innovate in the mobile device market against formidable players like Apple Inc. and Samsung Electronics Co. Ltd.

Changing times
In the PC market where Dell awed its competitors 15 years ago by executing on a supply chain that shipped customized PCs directly to customers, and only six years ago was the number one PC manufacturer, Dell now finds itself third in PC market behind Lenovo and HP.

Another aspect of Dell's supply chain is the companies it's acquired as it attempts to expand its ability to provide products and services to customers. Since 2008, the company has reconfigured its supply chain by spending $13 billion to buy more than 20 companies including several large software and services firms, in an attempt to recast itself as supplier of technology and services to large companies.

Still, Dell's restructuring hasn't boosted revenues, and the company has found itself developing a supply chain around PCs and other products that are declining in sales.

In its third quarter earnings report, released last November, the company posted earnings of $475 million, or 27 cents a share, on revenue of $13.72 billion, down 11 percent from a year ago. Revenues declined across all of its business units. Large enterprise revenue was $4.2 billion in the quarter, an 8 percent decline. Small and midsized business revenue was $3.3 billion, a 1 percent decline, and consumer revenue was $2.5 billion, a 23 percent decline.

Will going private help?
In an attempt to revive the company's fortunes, Michael Dell, the company's chairman and CEO, has entered a partnership with investment firm Silver Lake to acquire Dell for $24.4 billion, which will effectively take Dell private.

I understand that while Dell is being considered for the 2013 Gartner supply chain top 25 list (because the research will examine Dell's supply chain in 2012 and the $24.4 billion purchase was announced in the first quarter of 2013), Dell may not make the list in succeeding years because it will no longer be a public company.

What the future holds
For now, however, it's worth taking a look at Gartner's assessment on Dell's supply chain, especially since it is an intriguing exercise for all of us to find out how long a company can run what some experts say is a uniquely designed, effective, and efficient supply chain that is part of a company whose products are not selling well.

Stan Aronow, research director in Gartner's Supply Chain Research group, and a co-author of the 2013 supply chain top 25 list, explained to me that there are two aspects of a company's business that are evaluated when considering which company gets on the list -- a company's financial information and the extent to which it is perceived as a leader by the supply chain community, as evidenced by a peer opinion component. Aronow's position is that despite the challenges Dell is facing from a product and market perspective, it continues to incorporate best practices in running its supply chain.

Dell's grade? F
I believe Dell has failed miserably during the past few years. It's failed on the financial front, and it's failed in its efforts to develop an end-to-end supply chain that includes providing innovating products and developing a sense of what the consumer market wants, as well as everything that goes into managing a nimble manufacturing process.

Yes, Dell may be strong at providing fast configure-to-order capabilities, and can be complimented for its design-to-value techniques, but it makes no sense to craft a value chain or supply chain around products whose sales are declining. In the end, the magnitude of that decline can very well outweigh a company's supply chain capability, as Dell has found out.

With regard to Gartner, it will be interesting to see what it says about Dell in the next supply chain top 25 list due in the next few months. What Gartner says about Dell at that time will affect Gartner's credibility in assessing supply chains across the high-tech industry.

"Dell's inability to come up with products that consumers want has slowed sales and reduced revenues"

@The Source: Yes, these are the reasons behind slow sales and reduced revenues but they may not necessarily impact the supply chain. The supply chain can remain intact if Dell is able to forecast the reduced demand and adjust production accordingly.

@the source, I believe that still dell is the number 1 in laptop and desktop business. When competition becomes tight, only the margin/profit can be compromised. I mean they can decrees the profit level and not to be sell in loss.

You said: "I don't think lack of innovation or failure to expand in a product line affects a company's supply chain." Really? I can't agree. Dell has not developed products that consumers want to buy, and companies that can't innovate and develop new products that attract consumer demand will see a corresponding ripple effect in their supply chain. Products that can't compete don't sell, and that affects demand and supply, inventory levels, sales and marketing, etc. Dell's inability to come up with products that consumers want has slowed sales and reduced revenues. It's a pitty that Dell has not been able to compete in the tablet and smartphone market. In the PC market Lenove and Acer are competing on price. This is a very sad situation.

TaimoorZ, I am aware of Dell's innovative supply Chains model. What I was basically hinting is Dell's well known PC business - where its greater revenue comes from is eroding with mobile devices markets. Its storage business isn't integrating well. Dell has the expertise and clout to do well. Going private isn't sufficient for Dell.

I guess Dell kept changing its strategies quite frequently and lost its no. one position. I remember they started setting up Electroncs R&D team here and interviewed many people. And soon they started laying off. Guess they were not clear. Now the competition is really tough in PC market. They really have to reinvent and keep focus.

"Dell will really need to innovate in some market to succeed as only being a low cost commodity configurer is a losing battle."

@Flyingscot: I think all the avenues that Dell can potentially step into have intense competition. I don't think there are many options for Dell to increase profitability by expanding into new markets. I think what they should focus on is bringing about operational efficiencies and cutting down costs.

"For instance, the company has to do a better job in providing services and developing software. It currently lacks a firm foothold in the smartphones and tablets markets."

@Anna: I agree with this but I don't think lack of innovation or failure to expand in a product line affects a company's supply chain. Dell has been well-known for it's supply chain strength for over the years and I don't think their inability to make success in the tablet or mobile market has anything to do with it.

Nicole, I'm sure Dell's management have carried out an in-depth analysis of its current situation and may also have various strategic moves up its sleeves, but I think going private may not resolve many of its current challenges. For instance, the company has to do a better job in providing services and developing software. It currently lacks a firm foothold in the smartphones and tablets markets. I'm curious to know where the company aims to reinvent itself.

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